Steel: Precious heavy metal

Churning out rebar 20 hours a day, Madar Holding's Dubai plant has its work cut out keeping up with demand.

Madar Holding, ANALYSIS, Materials

Churning out rebar 20 hours a day, Madar Holding's Dubai plant has its work cut out keeping up with demand. It's all about the future, as Jamie Stewart finds out.

If I knew how much further the price of steel can go up, then I would be a very rich man."

So says Madar Holding CEO Sameh Hassan. And though Hassan insists he does not possess the mystical powers of foresight that would allow him to retire early to a life of luxury, he is better placed than most when it comes to predicting the future of steel.

We are looking at expansion in both Dubai and Abu Dhabi. Sameh Hassan, CEO, Madar Holding

Madar, a subsidiary of Al Fozan Group, was established three years ago as a result of the disparity between supply and demand in the Middle East steel industry. The firm has since expanded its operations to cover the UAE, Qatar, Bahrain, Jordan, Syria and Sudan.

The firm's Dubai rebar processing plant, which opened for business last May, has seen Madar become one of the biggest suppliers in the region. With constant talk of supply and demand, materials shortages, and recent accusations from contractors of "hoarding" within the supply chain, Madar has its work cut out.

If he could gaze into his crystal ball and retire shortly after to the aforementioned life of luxury however, you get the impression that Hassan is not ready to hang up his stirrup bender just yet.

"We have now reached 80% to 85% of our capacity at our Dubai factory, and we are looking at expansion in both Dubai and Abu Dhabi," says Hassan.

"Here, we work in two ten hour shifts, so the factory is productive 20 hours a day. We have 100 workers, which rises to 120 at busier times of the year.

The factory has an output capacity of 300,000 tonnes a year, with plans to expand. Such plans are indicative of an industry experiencing an unprecedented boom. It is estimated that demand for steel bars in the UAE alone exceeds 4.5 million tonnes a year.

Hassan hopes that some of this demand can be met through an innovative new type of steel, known as MMFX. Madar is to import MMFX from the US, with the first shipment due to hit UAE shores at the end of August.

Plans are also being developed to manufacture MMFX in the region, following the initial period of importing.

"The type of soil that we have here in the region is corrosive," explains Hassan. "MMFX is five times more corrosion resistant than regular steel. It is therefore suitable for structures that require a lot of resistance to soil corrosion, such as waterfront buildings, high-rises, bridges, tunnels and in particular foundations of high rises."

In terms of strength, the new breed of steel is also grade 100, as opposed to regular steel, which is grade 60. At almost twice the strength, structures will require less volume. This in turn leads to a decreased energy requirement during the production process.

On a tour of the Dubai processing plant, we are given the chance to have a good snoop around the shop floor, with the expert hand of engineer Mahmoud Fouda leading the way.

It certainly seems business as usual, with the constant noise leading a poor Fouda to turn to more primitive technology, this time in the shape of a loud hailer, to make himself heard above the industrial production.

The factory has a cut-and-bend and a wire mesh production facility. "With cut and bend, the steel is sheared to the required size," Fouda explains. "If it requires bending, it goes into a side pocket. Some bending shapes can be complicated, such as those we supply to the Dubai Metro."

The Metro is Madar's single biggest contract, and has helped propel production within the factory to near capacity.

The wire mesh facility has been operational since last June. For the uninitiated, wire mesh is used for concrete reinforcement. Fouda, trusty loud-hailer in hand, takes over.

"We import wire rod which goes to the grooving machine. The machine grooves the wire into a particular size, and changes its flexibility. This makes it more suitable for wire mesh production, and puts the ribs on the rod, which improves the grip of the concrete against the steel."

"The coil is then put onto the wire mesh machine. It gets welded at 180 shots a minute. We can do different sizes of mesh depending on the client."

Innovation

A more recent innovation that Madar has introduced to its factory is couplers. Imported from Thailand, couplers are used to affix steel bars together. "Previously, you would affix the bars with an overlap of 5cm to 10cm depending on the diameter and either tie or weld them," shouts Fouda.

"Not only did this cause loss of steel, but it would not generate the same tensile strength as you have in the rest of the bar. Couplers provide a highly efficient way of connecting two bars of steel, while maintaining the same tensile strength the length of the bar."

Couplers are now in use predominantly in high rise buildings, and in horizontal structures where a longer length of bar is required.

All the fundamentals are in place to maintain the current climate. - Sameh Hassan

After confirmation that Hassan's stirrup bender is very much in operation, the grand tour is over, and Fouda leads us back up to the quiet of the office. Compared to the industrial buzz on the floor, you can hear a pin drop. Thankfully, Fouda foregoes the loud-hailer this time. We are joined again by Hassan, and the serious talk begins. Let's get down to prices.

Madar imports the majority of its materials from Turkey, Qatar, China, and the Ukraine. The firm also sources from within the UAE. "We are traders," says Hassan. "We buy from many sources. Provided it is the right quality and the right price and is acceptable to the industry."

"Since the beginning of the year the price has gone up dramatically. Right now the market is much quieter than it was at the beginning of the year. Since around the beginning of July, producers, contractors and end-users have been in a wait-and-see period."

Hassan, it would seem, may possess some of those elusive powers of foresight after all. According to figures from MEsteel, the price of reinforcing bars rose by 92% in the first six months of this year. However, shortly after our visit to Madar, the first signs of light began to show at the end of the tunnel for contractors.

The price quoted for August fell 9.7% from July - the first time that MEsteel has indicated a month-by-month drop in price since October 2007.

Hassan indicates four factors as influencing price: Raw materials, demand, energy and freight.

"In terms of raw materials, there is scrap and there is iron ore," Hassan explains. "Iron ore prices are determined globally through major and regional contracts between key iron ore miners and large global steel producers."

"Scrap depends on the sources. There is industrial grade steel known as heavy scrap, and light scrap. Scrap used to come in big quantities from Eastern Europe, Russia, Ukraine, anywhere you had a lot of industrial remnants."

Today, however, these countries are seeing healthy growth in construction and are utilising a lot of their own scrap. There is a further seasonality factor. In winter scrap routes are affected by harsh weather, and a shortage of scrap occurs. In summer, such routes are more open.

Hassan then moves onto demand. "Turkey is our key supplier," he says. "It exports about 50% to 60% of its production which usually goes to the US, Western Europe and the Middle East.

"The US market has been relatively weak over the past several months, Western Europe has been business as usual and the boom is still here in the Middle East. There is also very heavy demand in India and China. In the end, we are competing for the same steel from different sources."

Energy prices

Hassan also lists the obvious increase in energy prices, and the subsequent effect on freight costs, as playing their part.

"How will that play out in the coming months? It all depends," he says. "It would appear that energy prices are here to stay. Iron ore prices are not expected to drop until the next negotiation, so no one knows in the coming months what will happen."

And so to the August drop in MEsteel's figures. Despite the much talked about steel shortage, Hassan insists there is no such thing. In three years, he says, he has not seen the type of shortage that would cause multiple projects to grind to a halt simultaneously.

So with regards to an apparent glut of steel, and the current pause in the market, Hassan gives his take on the immediate future. "There may be a small correction but no one is anticipating a crash. All the fundamentals are in place to maintain the current climate."

A small correction. This could be precisely what MEsteel's figures are showing. But where things go from here, who knows? Hassan claims no powers of foresight. His crystal ball, however, certainly appears a little clearer than most.

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